1. According to virtually all conventional (non-Austrian) economists, what role
ID: 2439614 • Letter: 1
Question
1. According to virtually all conventional (non-Austrian) economists, what role does the central bank play in a financial crisis?
a.) Contractionary fiscal policy to reduce leverage.
b.) Lender of last resort.
c.) Expansionary fiscal policy to reduce herding.
d.) No role.
2. Leverage is best defined as:
a.) the practice of buying an asset with borrowed money.
b.) using friends inside the banking industry to secure loans.
c.) the ability of people without income to secure mortgages.
d.) low interest rates at the beginning of the term of a loan that later rise.
3. Which of the following describes the law of diminishing marginal control?
a.) The Federal Reserve Bank cannot impact excess reserves and the money supply.
b.) Financial institutions have few ways to assess the solvency of borrowers.
c.) After regulations are enacted, institutions find ways around the regulations.
d.) As people engage in leverage, they have less and less control over the price of the asset.
4. Which of the following is not one of the unconventional monetary policy tools used by the Fed?
a.) Precommitment strategy
b.) Credit easing
c.) Operation twist
d.) Dodd-Frank Act
5.) Negative interest rates:
a.) can only exist if there is inflation
b.) are impossible
c.) mean that lenders pay borrowers for making a loan
d.)mean that borrowers pay lenders for making a loan
Explanation / Answer
Ans:
1) Option B
Lender of last resort.
Central bank is also called as lender of last resort.It means central bank offers loans to banks or other eligible institutions in case of financial difficulty or near collapse.Hence in case of financial crisis, central bank plays the role of lender of last resort.
2) Option A
the practice of buying an asset with borrowed money.
Leverage is a strategy of using borrowed money to purchase assets.Leverage can also be understood as amount of debt capital a firm uses to finance assets.
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